WCC Q2 2025: Data Center Sales Exceed $1B, 65% YoY Growth
- Robust Data Center Momentum: The company’s data center business has exceeded $1 billion in sales with 65% year-over-year growth, and the Q&A highlighted a strong order backlog and accelerating momentum in both white and gray space, which underscores a solid long-term growth trajectory for this high-margin segment.
- Improving Pricing and Margin Dynamics: Executives noted that although tariff-related pricing benefits are not reflected in the outlook, recent supplier price increases—including commodity-driven gains (e.g., copper) and negotiated project pricing—have contributed to margin expansion in past quarters, with expectations of further sequential gross margin improvements in the second half of the year.
- Return to Growth in Utility Segment: The Q&A discussions pointed out that investor-owned utilities (IOUs) are beginning to return to growth, and utility margins remain strong due to low SG&A intensity. This turnaround in the utility segment, along with overall operating leverage, supports an attractive bull case for improved profitability moving forward.
- Tariff impact uncertainty: Management highlighted that none of the tariff‐driven pricing benefits or increases are included in their guidance, leaving margins exposed to volatile supplier pricing and uncertain impact on profitability.
- Weak utility performance: The utility segment (UBS) showed softness—with reported sales down 4% and public power customers lagging—raising concerns about its potential drag on overall performance.
- Commodity price volatility: Notable fluctuations in commodities, particularly copper, introduce unpredictability and could adversely affect margins if price increases aren’t fully passed through.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Organic Sales Growth | FY 2025 | 2.5% to 6.5% | Increased and narrowed ranges, revised upward | raised |
Reported Sales Growth | FY 2025 | Up about 20% | Increased and narrowed ranges | raised |
Adjusted EBITDA Margin | FY 2025 | Approximately 50 bp lower than Q2 2024 | Approximately 40 bp lower than Q3 of prior year, sequentially up 20 bp | raised |
Adjusted EPS | FY 2025 | Assumes benefit from calling preferred stock | Midpoint of the prior ranges maintained | lowered |
Free Cash Flow | FY 2025 | $600M to $800M (95%-105% of adjusted net income) | $600M to $800M (implying 100% of adjusted net income) | no change |
Reported Sales Growth | Q3 2025 | no prior guidance | Expected to be up mid to high single digits year-over-year | no prior guidance |
Organic Sales Growth | Q3 2025 | no prior guidance | Expected to be up a similar amount as reported, with moderated FX headwinds | no prior guidance |
Adjusted EBITDA Margin | Q3 2025 | no prior guidance | Approximately 40 bp lower than the third quarter of the prior year, sequentially up 20 bp | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Data Center Growth | Highlighted robust growth across quarters with double‐digit year‑over‑year increases in Q1 2025 , Q4 2024 (70%+ growth, significant customer demand) , and solid momentum in Q3 2024. | Q2 2025 continues to show strong performance with over $1 billion in sales, 65% YoY growth, and expanded backlog. | Bullish and consistently strong. Growth remains robust and is driven by AI and expanding customer deployments, with even higher percentages reported in Q2 2025. |
Data Center Margin Dynamics | Discussed in Q1 2025 with impacts from large project mix , in Q4 2024 with early low‐margin direct shipments and expectations of margin normalization , and Q3 2024 emphasizing sequential EBITDA improvement. | Q2 2025 reflected mixed margins – lower gross margins due to a high mix of hyperscale projects but offset by growth-driven operating leverage. | Mixed sentiment with cautious optimism. Margin pressure from low‑margin project mix is present, but the trend toward normalization via additional services remains intact. |
Utility Segment Performance and Recovery | Q1 2025 noted temporary weakness and destocking ; Q4 2024 reported softness due to destocking and regulatory headwinds ; Q3 2024 described broad market softness but positive Canadian results. | Q2 2025 continued to show challenges (e.g. a 4% sales decline and margin compression in UBS) but highlighted recovering trends in IOUs and an optimistic H2 outlook. | Transitional with cautious optimism. While short‑term softness persists, especially in public power, recovery is anticipated later in the year supported by improved backlog and customer wins. |
Tariff-Related Pricing Management and Uncertainty | Q1 2025 discussed a two‑quarter lag for price increases and fixed pricing on large projects ; Q4 2024 detailed a well‑developed playbook with low direct exposure ; Q3 2024 had no mention. | Q2 2025 addressed increased price notifications and active mitigation strategies while maintaining low tariff exposure. | Consistent management approach amid uncertainty. Despite volatility and increased notifications, the proactive playbook keeps exposure low and margins protected. |
Margin Pressure from Product Mix and SG&A Adjustments | Q1 2025 cited lower gross margins from a high mix of low‑margin shipments and modest SG&A increases ; Q4 2024 mentioned divestiture benefits offset by SG&A headwinds ; Q3 2024 noted product mix challenges with offsetting measures. | Q2 2025 reported similar mix impacts with gross margins down due to project mix and rising SG&A from merit increases, though operating leverage helped. | Ongoing pressure with signs of mitigation. Pressure from lower‑margin product mix and rising SG&A persists, but operating leverage and strategic divestitures are beginning to offset these effects. |
Commodity Price Volatility and Inflation/FX Headwinds | Q1 2025 mentioned modest benefits from commodity price rises and FX headwinds affecting reported sales ; Q4 2024 noted significant FX headwinds and modest inflation effects ; Q3 2024 addressed inflation chatter with slight FX variance. | Q2 2025 described managed impacts from copper volatility (around 1%) and ongoing FX/inflation pressures with targeted pricing improvements expected. | Persistent headwinds but actively managed. Commodity volatility and FX/inflation pressures remain a challenge, yet proactive pricing and supply chain adjustments are helping to moderate their impact. |
Solar Business Underperformance | Q4 2024 highlighted significant underperformance in solar (contributing as a headwind) and Q3 2024 noted a 25%+ drop in solar sales dragging EES sales. | Not mentioned in Q2 2025 or Q1 2025. | Topic discontinued. Solar underperformance, which was previously a significant drag, is no longer a focus, suggesting a possible shift away from this segment. [N/A] |
Regional Market Positioning | Q1 2025 emphasized strong market share and growth in Canada ; Q4 2024 reported robust broadband and EES performance in Canada ; Q3 2024 showed materially better construction and industrial results in Canada. | Q2 2025 reiterated positive traction in Canada with strong broadband growth and increased infrastructure project activity. | Consistently positive. The sentiment remains very favorable, with Canada being a standout region due to strong broadband and infrastructure performance across multiple segments. |
Industrial Sales Underperformance | Q1 2025 noted industrial sales down low single digits and roughly flat organically ; Q4 2024 reported a low‑digit decline in the U.S. with offsetting Canadian growth ; Q3 2024 described sluggish U.S. activity with better Canadian outcomes. | Q2 2025 saw industrial sales flip to modest positive low single digits, aided by improved day‑to‑day demand and project activity in both the U.S. and Canada. | Slight improvement. While industrial underperformance remained an issue across periods, Q2 2025 indicates a modest rebound, particularly as Canadian performance offsets U.S. softness. |
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Demand Momentum
Q: Is July's growth genuine or easier comps?
A: Management confirmed that July sales per workday were up around 10% versus last year, reflecting real, sustained momentum across key segments—not merely easier comparisons. -
UBS Margins
Q: Why did UBS margins decline by 40 bps sequentially?
A: They noted that despite higher volumes, UBS margins dropped about 40 basis points mainly due to a mix of customer types and a SG&A increase from scheduled merit raises. -
Utility Mix
Q: How are non-IOU utilities performing this quarter?
A: Management explained that while overall utility sales softened, IOU segments returned to growth, and public power – though slower – is set to improve as projects normalize. -
Data Center Metrics
Q: What metrics indicate strong data center performance?
A: They emphasized robust data center results, with total data center sales exceeding $1 billion and growing 65% year over year, supported by strong end-user visibility and healthy backlog trends. -
Gray vs White
Q: How are white vs gray space metrics differing?
A: While the majority of revenue remains in the white space, the gray space is growing at a materially higher rate—around 90% compared to the white space’s high 60% growth—indicating expanding scope in retrofit and new build activity. -
Working Capital
Q: What is the target for net working capital intensity?
A: They aim to return their working capital intensity toward pre‐COVID levels, targeting roughly a 19% range, though inventory gains from tariff effects remain temporary and uncertain. -
Tariff Pricing
Q: Is incremental tariff pricing factored into guidance?
A: Yes; the guidance already includes known supplier price increases—about a 1.5% benefit—applied uniformly across segments without speculative future tariff impacts. -
Industrial Trend
Q: Is industrial business showing genuine recovery trends?
A: Management indicated that industrial demand has recovered, with day-to-day U.S. demand improving and backlog growing sequentially across EES, reflecting a clear turnaround from previous softness. -
Tariff Details
Q: How will tariff price increases flow through operations?
A: Suppliers are notifying mid to high single-digit price hikes, but due to a mix between negotiated project prices and stock sales, only about half of these increases are expected to pass through over time. -
July & Copper Impact
Q: Did July's growth include pricing boost from copper?
A: It is too early to isolate a specific pricing benefit in July from copper price swings; overall, copper represents only a mid single-digit portion of revenue without a material impact on results. -
Security Growth & Acquisition
Q: What drove security growth, and is acquisition planned?
A: The security segment delivered double-digit growth fueled by advanced digital and IP-based solutions, with management declining to comment on any potential acquisition moves in that area.
Research analysts covering WESCO INTERNATIONAL.